Morgan Stanley Invests $49M in Indian Logistics Developer

Morgan Stanley Real Estate Investing has bought a majority stake in KSH Infra Pvt. Ltd, a Pune-based warehousing and logistics park developer for a reported INR 3.5 billion ($49 million), adding to the close to $2.3 billion poured into India’s logistics market over the last two years by foreign investors.

The transaction will give the American investment manager a controlling interest in KSH’s two logistics and industrial parks, which total about 1 million square feet (92,903 square metres), and fuel the Indian firm’s goal of adding 4 million additional square feet of warehouses in Pune and Mumbai by 2020.

This will be Morgan Stanley’s first investment into the country’s logistics real estate sector, but it follows in the footsteps of investments by Singapore’s Global Logistic Properties (GLP) and Warburg Pincus, as rapid development of e-commerce and regulatory changes have boosted the sector’s appeal with institutional investors.

Indian Logistics Player Set on Expansion

Rohit Hegde, managing director of KSH Distriparks Ltd. told Indian business publication Mint that the company was actively looking to grow its industrial real estate business amid “robust demand from various segments, including manufacturing, logistics companies, retailers and e-commerce players.

The deal will spin off KSH Infra from its parent company KSH Distriparks Pvt. Ltd, which also manages an internal container depot in Pune and a country-wide logistics business. The company, which began as a distributor of Bosch products in India, diversified into logistics in 1999 to serve the needs of the German manufacturer in Pune.

KSH Distriparks, in which Richard Li’s Pacific Century Group (PCG) owns a majority stake, brought in an operating income of $12 million for 2017 according to Care Ratings.

PE Giants Learn to Love India’s Sheds

The investment by Morgan Stanley makes the US investment house the latest international institution to be won over by India’s warehouses.

In November of 2018, Allianz linked up with Warburg Pincus-backed warehouse developer ESR to commit $225 million to acquire logistics facilities in the country. According to the companies, the investment serves as the seed for what the partners hope to grow into a $1 billion warehouse platform.

In December of last year, Indian warehouse developer Indospace reached a $580 million final close on a fund managed by Singapore’s GLP and Mumbai-based Indospace. That investment followed one year after the Canada Pension Plan Investment Board (CPPIB) committed $500 million to work with Everstone’s Indospace division to acquire 13 industrial and logistics parks and launch the Indospace Core platform.

Reform Measures Boost Logistics Sector

The Indian logistics industry, worth around $160 billion in 2018, is expected to surpass $200 billion by 2020, growing at 10.5 percent per year, according to data by JLL.

A key driver of the market will be the implementation of India’s Goods and Services Tax (GST), which came into force in July of 2017, shortly before the deluge of foreign private equity investments and joint ventures flooded the sector with capital.

The GST simplified India’s tax regime by substituting a single national tax for a myriad of state-based taxes, which resulted in long and unpredictable clearance processes at interstate borders that accounted for approximately 30 percent of travel time for commercial trucks, according to supply chain consultant GEP.

India’s logistics costs, which stood at 14 percent of the value of the shipment are now expected to shrink closer to the 6-8 percent global standard.